Does private enforcement constrain falsified statements? Evidence from the abolition of the procedural prerequisite for civil litigation in China

This is the authors' abstract. We don't add key points for this paper.

A central challenge in studying the relationship between private enforcement and falsified statements lies in identifying an exogenous shock that affects the intensity of private enforcement for specific firms in isolation. Document No. 185 [2020] issued by the Supreme People’s Court of China provides such a shock, as it abolished the procedural prerequisite for civil litigation against falsified statements by bond-issuing firms, thereby intensifying private enforcement. Exploiting this quasi-natural experiment, we identify two key findings. First, the removal of this procedural prerequisite significantly reduced the incidence of falsified statements among bond-issuing firms, a result that remains robust across a series of robustness checks. Second, this effect is primarily driven by heightened litigation risk faced by firms and improved regulatory efficiency. Overall, our study sheds light on the interplay between private and public enforcement and elucidates how China’s abolition of the procedural prerequisite (APP) for civil litigation curbs corporate falsified statements.